On Monday, BofA Securities adjusted its stance on Rakuten Bank Ltd (5838:JP) stock, shifting the rating from Neutral to Underperform and reducing the price target to JPY3,300.00, down from the previous JPY3,600.00.
The change reflects concerns over the bank's slower than expected return on equity (ROE) improvement compared to other banks and the ongoing policy of not paying dividends, which is seen as unattractive for shareholders.
The analyst cited several factors contributing to the downgrade. There are worries about a potential decline in earnings per share (EPS) as the financial technology restructuring unfolds. Additionally, uncertainty surrounds the share exchange ratio between Rakuten Bank and its Card/Securities units, which might impact the stock following the first half results expected in January.
The report also mentioned the increased theoretical cost of capital for Rakuten Bank, which has been raised from 7.41% to 8.01%. This adjustment is a response to the uncertainties associated with the bank's restructuring strategy.
As a result, the price objective has been recalculated, now based on the fiscal year ending March 2025 estimated book value per share (BPS) of JPY1,742 and a fair price-to-book (P/B) ratio of 1.89x.
The analysis reflects a cautious outlook on Rakuten Bank's financial performance and strategic direction. The bank's stock may face pressures as investors digest the implications of the restructuring and the lack of dividend payouts. The revised price target suggests a more conservative valuation of the company's shares in light of these challenges.
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